LONDON, July 11 (Reuters) – Binance, the world’s largest cryptocurrency exchange, continues to process transactions from Iranian clients despite U.S. sanctions and a company ban on doing business in Iran, a Reuters investigation found.
In 2018, the United States reimposed sanctions it suspended three years earlier as part of Iran’s nuclear deal with major world powers. In November of that year, Binance informed traders in Iran that it would no longer serve them and told them to liquidate their accounts.
But in interviews with Reuters, seven traders said they circumvented the ban. Traders said they continued to use their Binance accounts until September last year, losing access only after the exchange tightened anti-money laundering checks a month ago. Before this, customers could trade by simply signing up with an email address.
“There are some alternatives, but none are better than Binance,” said Asal Alizade, a trader in Tehran who used the exchange for two years until September 2021. “It doesn’t require authentication, so we’ve all used it.”
In addition to those interviewed by Reuters, 11 other people in Iran said on their LinkedIn profiles that they also traded cryptocurrencies on Binance after the 2018 ban. None of them answered the question.
The exchange’s popularity in Iran is well known within the company. Senior employees knew and joked about the exchange’s growing number of Iranian users, according to 10 messages first sent to each other in 2019 and 2020. “Iranian boy,” one wrote in response to data showing Binance’s popularity on Iranian Instagram.
Binance did not respond to Reuters questions about Iran. In a March blog post on Western sanctions against Russia, Binance said it “strictly adheres to international sanctions rules” and has formed a “global compliance working group that includes world-renowned sanctions and enforcement.” expert”. Binance said it uses “bank-grade tools” to prevent sanctioned individuals or entities from using its platform.
The Iranian mission to the United Nations in New York did not respond to a request for comment.
Seven lawyers and sanctions experts told Reuters that Iranian trades on exchanges could be of interest to U.S. regulators.
Binance, its holding company in the Cayman Islands, said it does not have a headquarters. It did not provide details on the entity behind its main Binance.com exchange, which does not accept US customers. Instead, U.S. customers were directed to a separate exchange called Binance.US, which was ultimately controlled by Binance founder and CEO Changpeng Zhao, according to 2020 regulatory filings.
The structure means Binance is not protected from direct U.S. sanctions that prohibit U.S. companies from doing business in Iran, lawyers said. This is because traders in Iran use Binance’s main exchange, which is not a US company. But Binance does run the risk of so-called secondary sanctions, which are designed to prevent foreign companies from doing business with sanctioned entities or help Iranians evade U.S. trade embargoes. In addition to causing reputational damage, secondary sanctions can also prevent companies from accessing the U.S. financial system.
The four lawyers said Binance’s exposure would depend on whether sanctioned parties transacted on the platform and whether Iranian customers circumvented a U.S. trade embargo as a result of their transactions. Ferrari & Associates, a Washington law firm.
Reuters found no evidence of Binance being used by sanctioned individuals.
When asked about the use of Binance by Iranian traders, a U.S. Treasury spokesman declined to comment.
Binance’s compliance checks on its users were weak until last year, despite concerns raised by some senior company data, Reuters reported in January based on interviews with former senior employees, internal sources and communications with state regulators. The exchange responded that it was pushing for higher industry standards. A new report from Reuters shows for the first time how a loophole in Binance’s compliance program allowed traders in Iran to do business on the exchange.
Binance dominates the $950 billion crypto industry, providing its 120 million users with a range of digital currencies, derivatives and non-fungible tokens, and processing hundreds of billions of dollars worth of transactions every month. Exchanges are increasingly becoming mainstream. Its billionaire founder Zhao – known as CZ – extended his reach into traditional businesses this year by pledging $500 million to Tesla boss Elon Musk’s planned takeover of Twitter. Musk has since said he will back out of the deal. Last month, Binance hired Portuguese football star Cristiano Ronaldo to promote its NFT business.
Since the Islamic Revolution in 1979, the West and the United Nations have imposed sanctions on Iran over its nuclear program, as well as for alleged human rights abuses and support for terrorism. Iran has long maintained that its nuclear program is for peaceful purposes.
Under a 2015 deal between Iran and six world powers, Tehran curbed its nuclear program in exchange for some sanctions relief. In May 2018, President Donald Trump abandoned the agreement and ordered the reimposition of U.S. sanctions eased under the agreement. The restrictions came back into effect in August and November of that year.
After Trump’s action, Binance added Iran to a list of so-called “sanctioned countries” in the terms of its usage agreement, saying it could “restrict or deny” services in those areas. In November 2018, it warned its Iranian customers via email to withdraw cryptocurrency from their accounts “as soon as possible.”
Publicly, some Binance executives have praised its compliance program. Its then-CFO said in a blog in December 2018 that it had invested heavily in fighting dirty money, saying it took a “proactive approach to detecting and combating money laundering.” The following March, it hired a U.S. compliance platform to help it screen for sanctions risks.
According to an internal document seen by Reuters, as of August 2019, Binance considered Iran — along with Cuba, Syria, North Korea and Crimea — as a “HARD 5 SNCTIONED” jurisdiction, and the exchange would not be listed on the conduct business in this jurisdiction. The May 2020 document cites Chief Compliance Officer Samuel Lim as adding Iran to a list of “strictly prohibited” countries.
Citing their knowledge of the local industry, traders said Binance’s profile among the country’s many crypto users has grown even as its stance on Iran has grown tough.
Cryptocurrencies are becoming more attractive there as sanctions have hit the economy hard. Since the inception of Bitcoin in 2008, users have been drawn to the cryptocurrency’s promise of economic freedom beyond the control of governments. Users say that many Iranians rely on bitcoin to conduct business on the internet due to their isolation from global financial services.
“Cryptocurrencies are a great way to circumvent sanctions and make big bucks,” said Ali, a trader who can only be identified by his first name. Ali said he used Binance for about a year. He shared with Reuters information from a Binance customer service representative showing that the exchange closed his account last year. Citing recommendations from the UN Security Council sanctions list, they said Binance was unable to serve users from Iran.
Other traders on the exchange cited its weak background checks on customers, as well as its easy-to-use trading platform, strong liquidity and large tradable cryptocurrencies as reasons for its growth in Iran.
Pooria Fotoohi, who lives in Tehran and said he runs a cryptocurrency hedge fund, said he used Binance from 2017 until last September. He said Binance has won over Iranians because of its “simple” know-your-customer controls, noting that traders only need to provide an email address to open an account.
“They managed to gain huge volumes in a very short period of time, including multiple pairs,” Fotoohi said.
Angels of Binance — volunteers who share exchange information around the world — also helped spread the word.
In December 2017, Angels announced the launch of a group called “Binance Persian” on the Telegram messaging app. The group is no longer active. Reuters could not determine how long it had been in operation, but identified at least one Iranian as an active angel after Washington reimposed sanctions.
According to his LinkedIn profile, Mohsen Parhizkar worked as an angel from November 2017 to September 2020, managing the Persian Group and helping its users. A person who worked with Parhizkar confirmed his role and shared the information they exchanged. When contacted by Reuters, Parhizkar said Binance had canceled projects in Iran due to sanctions. He did not elaborate.
Following the 2018 ban, at least three senior Binance employees realized the exchange was still popular in Iran and used by customers there, 10 Telegram and company chat messages between employees seen by Reuters show.
As of September 2019, Tehran was one of the cities with the most followers on Binance’s Instagram page, surpassing New York and Istanbul, according to a message from the same month. The employees then downplayed it. One jokingly suggested promoting Binance’s popularity in Iran, saying: “Tweet on Binance US Twitter.”
In another exchange in April 2020, a senior employee also noted that an Iranian trader was using Binance, but did not say how he knew this. The same year Binance compliance documents reviewed by Reuters ranked Iran’s illicit financial risk rating as the highest of any country.
“A Beginner’s Guide to VPNs”
Further underpinning Binance’s growth in Iran, traders said, is the ease with which users can bypass restrictions through virtual private networks (VPNs) and tools that hide internet protocol (IP) addresses that connect internet usage to a location. North Korean hackers used VPNs to mask their locations in 2020, while setting up accounts on Binance to launder stolen cryptocurrency, Reuters reported in June.
Business developer Mehdi Qaderi said he used a VPN to trade about $4,000 worth of cryptocurrency on Binance in the year to August 2021. “All Iranians are using it,” Qaderi said of Binance.
Sophisticated analytical tools exist that can detect IP address obfuscation, the U.S. Treasury Department said in 2021 guidance on how to impose sanctions on crypto companies. Encryption companies can also collect information to alert them to users in sanctioned countries, such as from email addresses, it said.
“Cryptocurrency exchanges are expected to take such measures to comply with sanctions,” said Syedur Rahman, legal director at Rahman Ravelli LLP in London.
Binance itself supports the use of VPNs.
Zhao, the CEO of Binance, tweeted in June 2019 that VPNs are “a necessity, not an option.” He deleted the comment before the end of 2020. Binance did not comment when asked about the tweet. In July of the following year, Binance published a “Beginner’s Guide to VPNs” on its website. One of its tips: “You may want to use a VPN to access websites that are blocked in your country.”
Zhao realized that crypto users often bypass Binance’s control. He told an interviewer in November 2020, “Users do sometimes find clever ways to get around our blocks, we just need to be smarter about how we block.”
(Reporting by Tom Wilson and Angus Berwick; Editing by Janet McBride)
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